Adoption broadens on-chain collateral beyond stablecoins and money market funds, while regulatory treatment remains institution-specific
Nonco and M1X Global said in New York on September 8 that the institutional digital asset firm will accept USDM1 as collateral from eligible counterparties and use the tokenized sovereign bond across its derivatives, financing and institutional trading operations.
The move expands Nonco’s collateral framework beyond payment stablecoins and tokenized money market fund shares. It also tests whether digitally issued sovereign debt can function as productive collateral across institutional markets operating around the clock.
A different form of on-chain collateral
USDM1 is a US dollar-denominated sovereign bond issued on-chain by the Republic of the Marshall Islands. According to M1X Global, the instrument is secured on a one-to-one basis by short-dated US Treasuries pledged to a US trust company under a bankruptcy-remote structure.
The bond is governed by New York law and includes a customary waiver of sovereign immunity. M1X Global said holders have two sources of recourse: a right to par redemption against the sovereign issuer and a first-priority security interest in the underlying Treasury collateral under Articles 8 and 9 of the US Uniform Commercial Code.
That structure gives USDM1 a different legal and economic profile from the stablecoins commonly used in digital asset markets. Payment stablecoins are generally liabilities of corporate issuers, while tokenized money market funds represent interests in investment funds. USDM1 remains a sovereign debt security even though it is issued and transferred through blockchain infrastructure.
“Tokenization is a technology, not an asset class,” said Jordan Goldman, president and chief operating officer of M1X Global. “A payment stablecoin, a fund share and a sovereign bond can all move on-chain, but they remain fundamentally different financial instruments.”
Goldman added that assets with the same nominal dollar value may receive different collateral treatment depending on their legal rights, eligibility, netting arrangements and financing characteristics.
Collateral utility will depend on regulatory treatment
USDM1 pays a sovereign coupon and has been structured for round-the-clock, same-day settlement. M1X Global also says the instrument is compatible with standard documentation used for derivatives, repurchase agreements and securities lending, including ISDA, GMRA and GMSLA agreements.
The company said the bond has been designed to support look-through treatment as Level 1 high-quality liquid assets when it is not pledged elsewhere. Any such classification, however, remains subject to the regulations and determinations of each financial institution’s prudential supervisor. Individual institutions must conduct their own capital, liquidity and collateral-eligibility assessments.
Nonco said it has recorded more than $100 billion in bilateral over-the-counter trading volume and onboarded over 900 institutional counterparties. The firm previously used shares in Superstate’s USTB tokenized Treasury fund as collateral in a bilateral bitcoin-dollar options transaction.
“Natively issued sovereign debt adds another important building block to our toolkit,” said Jeffrey Howard, head of North America and partner at Nonco. “Institutional markets have always optimized among different forms of high-quality collateral depending on the transaction. As markets move on-chain, the same principle applies.”
Custody and settlement infrastructure supporting USDM1 includes Anchorage Digital Bank, BitGo Bank & Trust and tZERO’s regulated broker-dealer custodian, according to M1X Global. The instrument is also available through Tradeweb and has been accepted by the FDIC-insured Bank of Guam.
M1X Global said USDM1 was recently used as the sovereign securities collateral leg in an on-chain repo transaction with Virtu Financial through Tradeweb. The transaction demonstrated how digitally issued sovereign securities could be incorporated into established institutional financing arrangements.
The broader test will be whether the instrument can develop sufficient liquidity, valuation transparency and acceptance among counterparties to operate at scale. Blockchain-based settlement may allow collateral to move continuously, but it does not remove the need for enforceable creditor rights, reliable custody, agreed valuation methods and clear procedures in the event of default.
USDM1 is being offered solely outside the United States under Regulation S of the US Securities Act. It has not been registered under US federal or state securities laws and is subject to restrictions on offers, sales and transfers involving US persons.
Investors should review the relevant offering documents and associated risks before making any investment decision and seek legal, tax or financial advice where appropriate.
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